Nothing is more important to an entrepreneur than capital. And nothing can bring as much embarrassment, resentment, and peril to relationships with people you love and respect than losing their money. For your first venture, things might be different because people tend to temper their expectations, but once you are already a successful entrepreneur and people invest with you because they think it’s a sure thing, watch out. The risk to personal relationships is almost certainly not worth the potential pain and anguish.

For too much of my career, I was not disciplined enough to say no to friends and family who wanted to invest in my deals. Often, I felt the urge to do them a favor, but accepting money for an investment that you are responsible for can be a huge burden if it doesn’t turn out well.

Too often, a successful entrepreneur takes the money because he wants to be a hero—not because it spells the difference between making the deal or losing it. This is a sure sign that your excitement has blinded you to the real risks.

It has taken me more than 30 years to learn this lesson. Enlightenment finally arrived in mid-2016 as I was getting ready to buy a portfolio of photographs that could be worth many, many times what I paid for it. It seemed like the kind of asymmetric opportunity that I like—where the upside is many times the downside—and I shared my excitement about the prospects with a very close friend who is also a serial entrepreneur.

Over the 30 years of our friendship, Andy and I have invested in a handful of each other’s deals, but I am sure we both feel that we were never a part of the other’s most profitable ventures, though it is not clear why that is. Nevertheless, I told Andy I was investing $1.5 million in an opportunity that I believed could be worth $5 million or $10 million (or more). Andy was intrigued: “Why don’t you cut me in for 10 percent?” I told him I would consider it.

After I closed the deal, which was very nerve-racking, I concluded that my venture was more speculative than I had originally anticipated and that it might actually be worth less than $1.5 million, though that $5 to $10 million valuation was still a real possibility. (This could have also been the usual fear I experience on some of these wild rides.) For three weeks, I agonized over whether to take Andy’s capital. Not only was the deal riskier than I had thought, but bringing him in would be more complicated because, with an outside partner, I would have had to set up a separate set of books to track costs. More important, instead of being able to share the progress or failure of the deal with one of my most trusted friends, I feared the possibility that I might feel the need to filter our conversations and worry even more about my mistakes. Would our relationship change in small or large ways if the deal didn’t work out? I finally called him back and told him that I valued our friendship too much to risk it on a financial transaction that could add an unwanted layer of psychological drama.

But I was still not sure I was doing the right thing, so I did what I often do when I am facing a difficult decision: I posed the question to Tiger 21 members. The question hit an unexpected nerve. Ambivalence reigned. As one member put it, “I vacillate between thinking it’s my obligation to share great opportunities with friends and family to thinking it’s a horrible idea, as no good deed goes unpunished.” Another noted, “I have seen it work, but I have also seen it wreck family relationships.” A couple of other members pointed to relationships with friends and siblings that had been ruined. Their responses reopened a deep sadness I have long had about the loss of a long friendship over a failed business deal.

In follow-up interviews, two members confessed that they found it hard to avoid since they never could have been entrepreneurs without the capital they received from family members. “At the very beginning I had no choice,” recalls Rob Fleischmann, a software engineer in our Boston group who started his first company soon after graduation. “I was a young kid with only sweat equity to offer. Who else will give you money but family and friends?”¹

Robert Oringer also confessed straightaway that his ambivalence about investing with friends is tempered by the fact that he might never have achieved his ambition to be an entrepreneur without his father-in-law’s help. Nevertheless, Oringer has become extremely cautious about promoting his new ventures to close friends, ever since he invited an old college pal with type 1 diabetes to invest $50,000 in a diabetes-related deal that went south. “It was the first time I had ever asked an old friend to invest,” he recalls, “and it was a disaster. I thought of writing him a check for the money or investing in a future deal for his benefit.”² His friend, a successful attorney, told him, “Stop, I’m a big boy.” Oringer stopped apologizing, but he never did stop brooding. “That loss is always in the back of my mind,” he says. “I still feel a debt.”

Fleischmann went on to create a total of eight businesses specializing in Internet infrastructure, assisting major corporations such as AT&T, Time Warner, Comcast, British Telecom (BT), and Vodafone expand their online reach. He’s out of the startup business now, and with that distance he says, “My recommendation is, as soon as you can, stop doing it. Rich people know about the risks; family and friends are investing because they love you.”

Another member, Robert Kramer, shined a light on an important variable in deciding to bring someone you know into a deal: “I am more comfortable with friends than family,” he noted. “That’s probably because I apply the ‘big boy rule,’” explaining that he will accept investments from friends “who are sophisticated and experienced such that they generally understand the risks.”³

Oringer has developed an even stricter set of rules. When interviewed, he was in the process of vetting potential investors for a new company he was partnering in. “I’m making judgment calls,” he explains, “based on two criteria: their value to the new company and the company’s value to them.” That means high-net-worth individuals who not only care passionately about the problem that this new company is setting out to solve—a burdensome disease that is now incurable—but who also understand that it’s an extremely risky venture. “Each one is an agonizing process,” says Oringer, well aware that some are bound to be miffed about being excluded. “But I’m looking for people able to take and shoulder a big risk, and not everyone can do that.”

Everyone echoed that your investors must understand the risks. Typically, family and friends blindly follow a successful entrepreneur or general partner into the deal without understanding the associated risks and business landscape. They assume that, given an entrepreneur’s track record, they’ll make a profit, and they are shocked if an investment goes sour. That puts the entrepreneur or partner in an unfair position, worrying about making up their losses at precisely the time he or she, as the lead investor, has probably suffered higher losses than anyone.

If you can’t resist bringing in friends and family, make sure they are well aware of the risks and can afford them. Eric Silverman has “hundreds of investors” in his current business, “a hundred of them personal friends,” and he makes sure that he is completely transparent with them.⁴ It was a lesson he learned from investing in a friend’s business. Over the course of three years, “I discovered undisclosed lawsuits, incompetent employees, fraudulent deals, and even some good old-fashioned bribes. What I learned most is that there is no substitute for truly understanding and measuring risks up-front.” It was Eric’s biggest financial loss, and it taught him an indelible lesson. “I must understand that when friends trust me with their investments, they expect a level of care that exceeds other investments that they are making,” he says. “It doesn’t ensure success, but it keeps me focused on being truthful.”

It is comforting to learn that so many of my fellow entrepreneurs seem to agree that, for good and decent people, there is nothing more painful than losing the money of friends and family. Nevertheless, as reluctant as I am to bring a friend into a deal just to get their check, I doubt that I will be able to stifle the urge altogether. Starting a new business is always exciting, but it can also be a lonely quest. During my career as an entrepreneur, I’ve taken comfort in the fact that I have some friends who respect my abilities enough that they are willing to invest in them, even though we might not be batting 1,000.

If you too can’t resist bringing friends and family into a deal, the “big boy” qualification is a must. In fact, my “biggest boy” happens to be a woman, a dear friend who has participated in many of my deals, winners as well as losers. What I most appreciate is her endless enthusiasm and support and the way she accepts a loss without blame or rancor; it makes me want to be even more successful for her. And so it goes.

Err on the side of caution. As annoyed as friends and family might be at not benefiting from one of your successes, they will definitely be relieved when they learn that they missed out on your big loser. Let me give Robert Oringer the last word on this important topic: “Yes, you can invest with friends and family. But never do it without looking at it from every angle. If you’re their only ticket to score big, run!”